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Wages and Labour Productivity: the role of performance-related pay in Italian firms

  • Mirella Damiani
  • Fabrizio Pompei
  • Andrea Ricci

This paper analyses the role of Performance Related Pay (PRP) agreements on labour productivity and wages. Its main contribution is thus to investigate the effects of PRP on both dimensions, i.e. productivity and distribution, whereas most of the studies of related literature are restricted to one of those aspects. All estimates are performed for a large sample of manufacturing and service Italian firms with more than five employees and a restricted sample including only unionised firms. It allows us to focus on a relevant feature of industrial relations represented by worker representation and its role in local wage setting in the Italian economy. The expected positive link between PRP and firm performance has been confirmed in all estimates, also controlling for a rich set of covariates. Furthermore, the comparison of productivity estimates with those for wages allows us to ascertain that payments by results might be not only rent-sharing devices, but schemes that substantially lead to efficiency enhancements. These findings have been validated by a number of robustness checks, also taking into account endogen eity by using instrumental variables and the treatments of 3SLS. The paper argues that well designed policies, that circumvent the limited implementation of PRP practices, would guarantee productivity improvement. The real effectiveness of these measures would not be weakened under union governance.

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Paper provided by Università di Perugia, Dipartimento Economia in its series Quaderni del Dipartimento di Economia, Finanza e Statistica with number 124/2013.

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Length: 23 pages
Date of creation: 18 Nov 2013
Date of revision:
Handle: RePEc:pia:wpaper:124/2013
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